Inventory that remains unsold for a long enough period of time for it. This reduces the net reported value of that asset account. Weve covered the broad definition of inventory management. There is a credit to the contra-asset account under the related asset account. The debit in expense account signifies that the expenses incurred on obsolete inventory. When making a journal entry for obsolete inventory, the company debits an expense account and credits a contra-asset account. Per Generally Accepted Accounting Principles (GAPP), such inventory is generally written off as a production a financial loss to the company.īack to: Accounting & Taxation Why is Obsolete Inventory Important?Īs per GAAP regulations, organizations must have an inventory reserve account where they can add obsolete inventory on the balance sheet. The dead stock meaning can also be used when. Unfortunately, it can be found in the facilities of many businesses and takes up valuable warehousing space. It is a drain on resources and actively prevents a business's ability to increase its profits. This inventory remains unsold or un-utilized for a long time with reduced possibility of being sold. Dead stock is a form of surplus inventory that is unlikely to be sold in the near future. Obsolete inventory, also known as excess inventory or dead inventory, is the inventory that remains unused when the product life cycle ends. Inventory refers to the materials and goods that are a part of a firms stock, and are up for sale. Update Table of Contents What is Obsolete Inventory? Why is Obsolete Inventory Important? What is Obsolete Inventory?
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